Should you pay car insurance in installments?
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With annual premiums having the potential to reach thousands of dollars, you might wonder, “Can I pay my car insurance monthly?” Most car insurance companies offer monthly payment options, and for some people, this is a helpful budgeting tool. For others, paying in full makes more sense to avoid the additional monthly bill and potentially to earn a discount. Bankrate has broken down the pros and cons of splitting your car insurance premium into monthly installments so you can decide which payment plan option is best for you.
Is it better to pay car insurance monthly or in full?
Should you pay your car insurance in full or in monthly installments? The answer is: it depends. Your financial situation, how you prefer to pay your bills and how likely you are to switch companies midterm are all determining factors when choosing a car insurance payment plan.
If paying your premium in full causes financial hardship, you may want to break your premium into manageable chunks. On average, drivers in the U.S. spend $1,771 per year for a full coverage policy, so car insurance is a hefty bill for many people. You don’t want to pay your premium in full only to need that money later for an unexpected expense, so it helps to consider your full financial picture when making your decision.
Consider installment fees
Installment fees are another consideration when choosing a car insurance payment plan. Credit card companies and financial institutions usually charge a fee to process payments, and many insurance companies recoup this by adding an installment fee to your monthly bill. Typically, these installment fees are small, but they are also unregulated. An insurance company can set their own installment fee amount, even if the installment fee is higher than what they are being charged to process your payment.
Consider potential savings
Some insurance companies offer a pay-in-full discount that can help make paying your premium as a lump sum more beneficial. If you can afford to pay your premium upfront and your company provides a discount for doing so, an annual payment plan might be a good choice for you.
Consider your bill payment preferences
Deciding whether you want to pay in installments or as a lump sum also depends on how you like to pay your bills. Some people find it inconvenient to pay a monthly bill and would instead prefer to make one payment for the entire year. Others may find it difficult to remember to pay their annual premium since it only comes up once a year. Whichever option you choose, it’s essential to make your insurance payment on time to avoid a lapse in coverage and possible late payment fees.
Consider the likelihood of switching carriers
Finally, think about how likely it is that you will switch insurance companies in the middle of your policy term before choosing a payment plan. It can be easier to cancel your policy midterm if you are on a monthly payment plan because of how policy refunds are structured.
When you cancel a policy midterm, your insurance company will either give you a prorated refund or a prorated bill, depending on where you are in your billing cycle. Because you paid in advance, your refund amount will likely be larger if you’re on an annual payment plan. Some companies can take up to 14 business days to issue your refund, tying up what could be a substantial amount of money. This refund process could create difficulties in coming up with your first payment for a policy with a new car insurance company.
Pros and cons of paying car insurance monthly
While there are many things to consider when deciding to pay for your car insurance monthly, here are some key points:
|Perks of paying monthly||Drawbacks of paying monthly|
|Smaller payments may be easier to budget||No pay-in-full discount|
|May be easier to switch companies midterm||Monthly bill payments may cause inconvenience|
Pros and cons of paying car insurance annually
An annual car insurance bill may be a good option for you. The table below can help you decide:
|Perks of paying annually||Drawbacks of paying annually|
|Policyholders may earn a discount||Can be hard to budget for the lump expense|
|No installment charges||More money would be tied up while waiting for a refund if you switch midterm|
|Some people find it more convenient to pay once a year|
Other insurance payment methods
If you want to lower the amount you are paying in installment fees, but can’t afford to pay your premium in full, there may be other insurance payment methods for you:
- Quarterly or semiannual payments: Most car insurance companies offer quarterly or semiannual payment plans. These options can be a middle ground for those who want to split up their payments, but don’t want to feel the full impact of installment fees.
- Autopay: Regardless of your payment plan, you may want to consider signing up for autopay. Usually, this allows for an electronic funds transfer (EFT) on the due date. You’ll connect the insurer with your bank account or give them credit card information so they can automatically draw the money when the payment becomes due. Some insurers offer a policy discount for choosing an autopay method.
- Automatic bill pay: Automatic bill pay is similar to autopay, but instead of authorizing your insurance company to withdraw your premium from your bank account, you’re authorizing your bank account to send your premium to your insurance company. Most insurance companies prefer autopay since they have the control to withdraw your premium and, as such, may not give you a discount for automatic bill pay. If you don’t feel comfortable setting up autopay on your car insurance, however, automatic bill pay could be a way to help you keep your payments on track and avoid late fees or lapses in coverage.
Frequently asked questions
The best car insurance company varies depending on which insurer offers the coverage you need at a rate that fits your budget. Quotes will vary based on driving record, car type, mileage driven per year, state and many other factors. You’ll want to shop around and compare options to see which company offers you the best premium based on your personal information and coverage selections.
Generally, you’ll pay less for your policy if you can pay in full. But if paying a large lump sum upfront would put you in a tight financial spot — say, leave you unable to pay your car insurance deductible — making car insurance monthly payments may be a better option for you. Look over your budget so you know what you can afford.
Even if you don’t qualify for a paid-in-full discount, your car insurance company may have other car insurance discounts that you’re eligible for. You could ask your agent to review your policy for savings opportunities that may be overlooked.